Top ratings agency’s negative view of NAB

A TOP credit ratings agency has downgraded its outlook on National Australia Bank following the series of scandals and turmoil at the top of the banking heavyweight.

Fitch Ratings has cut its outlook on NAB’s long-term credit rating from stable to negative.

Announcing the change yesterday, Fitch analysts said the downgrade was due to problems that emerged at the financial services royal commission over the past year.

Fitch has NAB pegged at AA-, which is a high investment-grade rating. That grade is three rungs below the best rating available, triple-A. Australia’s other three big banks also have AA- ratings from Fitch.

If NAB were to have its credit rating downgraded, it would likely have to pay more for money it borrows from other institutions in order to lend in Australia.

That means the bank could increase its lending rates to cover higher costs. The lender last month increased its variable home loan rates.

The downgrade at Fitch means it is more likely the ratings agency will cut NAB’s credit rating in future, but does not mean such a cut is certain.

Fitch downgraded its outlook on CBA to negative last May — when that bank was embroiled in its own scandals — but has not adjusted the credit rating since then.

Announcing its downgrade to NAB, Fitch said in a statement that it reflected “the risk that NAB’s focus on remediating issues and changing culture means its ongoing operations may not receive sufficient management time”.

That meant there was the risk of “a weakening of NAB’s earnings relative to peers”, Fitch analysts said.

They also noted the shakeup in senior ranks at the bank, which last week abruptly announced it was parting ways with chief executive Andrew Thorburn and chair Ken Henry.

“Management changes may make this task [of dealing with remediation issues and changing the bank’s culture] more difficult in the short-term,” the Fitch analysts said.

Mr Thorburn is leaving on February 28, while Mr Henry, in a move that has ignited controversy, is remaining as chair until the bank has appointed its next permanent chief executive.